DALIAN (China) • Premier Li Keqiang likened managing slowing growth to a "Chinese chess game", balancing short-term stimulus moves against longer-term reform efforts to open up the world's second-largest economy.
"We have plenty of tools at our disposal," Mr Li said yesterday in a keynote address at the World Economic Forum's "Summer Davos" meeting here. "You need to be careful with immediate moves you take... we need to take targeted measures to resist downward pressure on the economy; at the same time, we need to build momentum for sustainable and healthy economic growth."
Mr Li is seeking to buttress global confidence in his nation's slowing economy after a stock market rout and surprise currency devaluation last month triggered a worldwide sell-off in commodities, equities and emerging market currencies.
ECONOMIC MOVES REQUIRE CARE
We have plenty of tools at our disposal. You need to be careful with immediate moves you take... we need to take targeted measures to resist downward pressure on the economy; at the same time, we need to build momentum for sustainable and healthy economic growth.
MR LI KEQIANG, Chinese Premier
His remarks echo those of People's Bank of China (PBOC) governor Zhou Xiaochuan, who said over the weekend the stock rout is close to ending and that state intervention stopped a free-fall.
"He's trying to strike a more upbeat note, telling the world that China remains a reassuring force for the international economy, and all countries will benefit from China's economic reforms eventually," said Professor Wang Yukai of the Beijing-based Chinese Academy of Governance.
"The Premier's speech is a response from China's central leadership to ease the growing doubts across the world over the country's future development and the wisdom of the government's economic plans."
Downward pressure on the economy has increased, with exports falling 5.5 per cent last month from a year earlier and the nation's official factory gauge falling to a three-year low. Data yesterday underscored the challenge facing policymakers, as factory-gate deflation deepened last month while consumer price gains increased.
China's Shanghai Composite Index dropped 1.4 per cent as the biggest tumble in producer prices in six years reignited concern about a deeper economic slowdown.
This led investors to take cash off the table, and put Asian equity traders on edge as markets retreated from a two-day rally.
Regional markets sank, with Shanghai losing 1.39 per cent, Hong Kong 2.57 per cent lower, Singapore 1.37 per cent down and Tokyo finishing 2.51 per cent off. Sydney ended 2.42 per cent lower.
If the economy were to "show signs of slipping out of the reasonable range, we have sufficient capability to respond", Mr Li said. "China will not see a hard landing."
While Mr Li said China has the tools it needs, the central bank's buying of yuan and selling of dollars to defend against a rapid currency depreciation cut foreign exchange reserves by a record US$93.9 billion (S$132 billion) last month.
China faces capital outflow pressures after devaluing the yuan as investors expect the currency to keep depreciating, which, coupled with the depletion of reserves, could complicate efforts to open the economy, according to Mr Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight here.
"This could constrain further capital account liberalisation measures if capital outflows continue in coming months" and force PBOC to use reserves to prevent yuan devaluation, he said.
Mr Li said Chinese policymakers have eschewed strong fiscal and monetary stimuli so far, and will not slow the pace of structural reform as they shift the economy's reliance from manufacturing and exports to services and consumption.
"Policymakers want to make it clear to foreign investors and politicians that it is still opening, its reform is still on track," said Mr Larry Hu, head of China economics at Macquarie Securities in Hong Kong.